ECB’s Holzmann Sees Quality of Stimulus in Focus in December

The European Central Bank’s stimulus revamp in December should focus on increasing the effectiveness of the tools rather than just their size, according to policy maker Robert Holzmann.

While the Austrian central bank governor acknowledged that it’s right to assume ECB President Christine Lagarde signaled more policy easing when she spoke on Thursday, he may be warning the market against expectations of a large increase in bond-buying.

Economists are mostly predicting that the 1.35 trillion-euro ($1.6 trillion) pandemic purchase program will be increased by around 500 billion euros.

ECB’s Holzmann Sees Quality of Stimulus in Focus in December

“We put a lot of money on the table, but inflation hardly moved so there is rising recognition that quantity by itself doesn’t do the trick,” Holzmann said in an interview in Vienna on Friday. “We have to look more into the structure and to see how this could be fine-tuned.”

While the ECB’s emergency program has prevented fragmentation across euro-area bond yields, it hasn’t done much for inflation, Holzmann said. The rate has languishing below zero since August and isn’t expected to turn positive until early next year.

He added that new policy instruments may be developed in the six weeks until the Governing Council’s next policy meeting on Dec. 10 to complement the existing bond-buying and bank-lending programs. He also argued that he doesn’t see much point in an interest-rate cut.

With the ECB’s balance sheet approaching 7 trillion euros and the list of existing policy tools long, a recalibration of measures could allow policy makers to get more bang for their buck.

Holzmann highlighted that the effects of stimulus can weaken over time, and also warned of side effects, including the danger of property-price bubbles.

ECB’s Holzmann Sees Quality of Stimulus in Focus in December

Nonetheless, the euro area needs more support. The strong summer rebound -- reflected in data on Friday -- looks like turning into a fourth-quarter contraction.

Holzmann played down the risk of a double dip and pushed back against suggestions that the Governing Council could act even before its next policy meeting if the situation deteriorates.

“What we have decided is to make preparations, to go through our portfolio and see in what area we need to recalibrate to be ready for December, but the decision will be based on December data,” he said. “It’s very clear we’ll use December projections and the information in December to make our decisions.”

©2020 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.